Carbon pricing in climate policy : seven reasons, complementary instruments, and political economy considerations

Baranzini, Andrea (Haute école de gestion de Genève, HES-SO // Haute Ecole Spécialisée de Suisse Occidentale) ; Van den Bergh, Jeroen (Institute of Environmental Science and Technology, Universitat Autònoma de Barcelona, Barcelona, Spain) ; Carattini, Stefano (Yale School of Forestry & Environmental Studies and Grantham Research Institute on climate change and the environment and Centre for Climate Change Economics and Policy, London School of Economics and Political Science (LSE), London, UK) ; Howarth, Richard B. (Environmental Studies Program, Dartmouth College, Hanover, NH, USA) ; Padilla, Emilio (Department of Applied Economics, Universitat Autònoma de Barcelona, Barcelona, Spain) ; Roca, Jordi (Department of Economics, Faculty of Economics and Business, University of Barcelona, Barcelona, Spain)

Carbon pricing is a recurrent theme in debates on climate policy. Discarded at the 2009 COP in Copenhagen, it remained part of deliberations for a climate agreement in subsequent years. As there is still much misunderstanding about the many reasons to implement a global carbon price, ideological resistance against it prospers. Here, we present the main arguments for carbon pricing, to stimulate a fair and well-informed discussion about it. These include considerations that have received little attention so far. We stress that a main reason to use carbon pricing is environmental effectiveness at a relatively low cost, which in turn contributes to enhance social and political acceptability of climate policy. This includes the property that corrected prices stimulate rapid environmental innovations. These arguments are underappreciated in the public debate, where pricing is frequently downplayed and the erroneous view that innovation policies are sufficient is widespread. Carbon pricing and technology policies are, though, largely complementary and thus are both needed for effective climate policy. We also comment on the complementarity of other instruments to carbon pricing. We further discuss distributional consequences of carbon pricing and present suggestions on how to address these. Other political economy issues that receive attention are lobbying, co-benefits, international policy coordination, motivational crowding in/out, and long-term commitment. The overview ends with reflections on implementing a global carbon price, whether through a carbon tax or emissions trading. The discussion goes beyond traditional arguments from environmental economics by including relevant insights from energy research and innovation studies as well.

Article Type:
Economie et Services
HEG - Genève
CRAG - Centre de Recherche Appliquée en Gestion
17 p.
Published in:
Wiley Interdisciplinary Reviews: climate change
Numeration (vol. no.):
2017, vol. 8, issue 4, pp. 1-17
Appears in Collection:

 Record created 2017-05-08, last modified 2020-10-27

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